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Series 7 Flashcards

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SIE Exam flashcards
1
Q

-utilities, groceries, pharmaceuticals
-doesn’t move with market
-inelastic

A

Defensive stock

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2
Q

-airlines, automobiles, cement
-go up and down along with market

A

Cyclical Stocks

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3
Q

-Procter and Gamble, IBM, Union Pacific
-reliable with consistent dividends
-often higher priced

A

Blue Chip Stocks

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4
Q

-smaller dividends
-capital reinvesting
-good prices

A

Growth Stocks

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5
Q

-AT&T
-some mature companies pay put most of their earnings as dividends
-larger dividend

A

Income Stocks

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6
Q

-Insurance, commercial banks, housing
-sensitive to interest rates
-housing industry, construction

A

Interest Sensitive Stock

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7
Q

-trade at lower price based on historical earning and asset value

A

Value Stocks

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8
Q

-Facebook, apple, amazon, Netflix, google
-companies leading in innovation and technology

A

New Economy Stocks

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9
Q

-communication, software, IT services
-companies involved in distribution/technology of goods and services

A

Tech Stock

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10
Q

-Affordable Housing, renewable energy, sustainable agriculture,
-moral and ethics beliefs guide investment decision
S&P Global 1200 ESG Index (Apple, J&J, Exxon Mobile)

A

Socially Responsible and Impact Stock

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11
Q

-when a corp. is formed, its corp. charter authorizes that a fixed number of common shares be issued
-assigned an arbitrary par value of usually $1

A

Authorized Stock

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12
Q

outstanding shares x current market price
Mega Cap $200 Billion+
Large cap $10 Billion +
Mid Cap $2-10 Billion
Small Cap $300M-2 Billion
Micro <$50M

A

Market Capitalization(market cap)

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13
Q

-maintains ownership records
-maintain the integrity of the record of all shareholder names and addresses
-issuing new stock certificates
-canceling old stock certificates
can send bondholder interest when payments are due and the redeemed principal at maturity

A

Transfer agent

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14
Q

-audits and oversees the transfer agent

A

Registar

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15
Q

-shareholders have right to keep proportional ownership if company chooses to issue more shares
-do this by offering separate securities called rights (reduced price) (usually expire in 30-60 days)
-can sell rights to another investor
-protects shareholder from their shares being diluted

A

Pre-emptive Rights

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16
Q

-most common
-votes must be evenly cast
-3 BOD seats, 100 shares = 300 votes (100x3) shareholder could cast exactly 100 votes for any candidate, if the only wanted to vote for 1 they could only cast 100 votes.

A

Statutory Voting

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16
Q
  • shareholder may divide their total votes in whatever manner
    -3 BOD seats, 100 shares = 300 votes, can choose to do all 300 votes for 1 candidate or cast 200 for 1 and 100 for another
    -advantage for small investor to have more influence
A

Cumulative Voting

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17
Q

-if shareholder cannot attend meeting, they are granted a POA to cast votes on their behalf

A

Proxy Voting

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18
Q

-$100 par
-no voting or preemptive rights
-market value does not affect dividend rate (fixed)
-must be paid prior to common on liquidation and dividends
-less risky less growth
-fluctuates with interest rates and issuers creditworthiness
-dividends are always paid based on par
types are cumulative, adjustable, variable, callable, convertible, participating
-market value based primarily on rising and falling interest rates
has equity

A

Preferred Stock

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19
Q

-vehicle for trading foreign securities in US
–registered with SEC
-sold in US with US $
-no voting or preemptive rights
-exchange rate risk (currency risk)
-issued by U.S Banks
-investor would invest if they believed us. $ would weaken and buying this Secuity will enhance the value of dividends paid
-pays dividends is only US dollar
can NOT vote for BOD
-receive cash value for preemptive rights
-trade on national stock exchanges
-market prices subject to foreign currency exchange fluctuations
-exchange listed ADRs MUST be sponsored

A

American Depository Receipts (ADR)

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20
Q

-considered sweeteners for new issues to make them more attractive to investors
-long term stock option to buy stock at a fixed price above market price when it is issued
-only valuable when stock rises
-can be traded
-no intrinsic value but significant time value since above market price
perpetual … have no expiration
-no preemptive rights
-considered “underwater”
-raises additional money if exercised
-help lower the interest cost on issue
-warrants valuations are directly influenced by market price of common stock
-value of warrant varies with price movement
-equity security
-trade separately from the stock of the company

A

Warrants

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21
Q

-certificates issued to the bondholder with owner’s name printed on them and no coupons attached
-can be transfered to another individual only after owner endorses the bond
-been largely replaced by book-entry

A

Registered Bonds

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22
Q

-every bond has same interest rate and maturity
-corporate bond issues and us gov. bond issues typically are done this way

A

Term Bond

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23
Q

-stated par value with coupon rate of 0
-no interest payments made
-bond purchased at a discount and redeemed upon maturity at par value
very sensitive to interest rate risk
-may have tax consequences regardless of gains

A

Zero Coupon Bond

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24
Q

-different maturity dates but same dates of issuance
-most municipal issues and corp. equipment trust certificates are done this way
-different maturities require different interest rates, so both maturities and stated interest rates differ for bonds in a …
-long time to maturity the higher the interest rate investors demand
-sequential maturities
-repays principal periodically over its life

A

Serial Bond

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25
Q

-same maturity but different dates of issuance
-rare
-used to finance long term construction projects where all money is not needed at ones

A

Series Bond

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26
Q

-largest amount of total of all bonds issued will mature with latest maturity date

A

Balloon Maturity

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27
Q

1/8 of par
30/360
ex.=105 5/8

A

Corporate and Municipal Bonds

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28
Q

1/32 of par
actual/actual
ex= 105-20

A

U.S gov. bonds

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29
Q

-buy and sell bonds out of own inventory
-made up of bid-ask
-ask is always higher than bid for bonds

A

Dealers

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30
Q

-return an investor is expected to receive on a bond

A

Bond Yield

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31
Q

-how yields are expressed
-a unit of measure used to describe the % change in the value of a financial instrument
-yield bond pays to investor
100 … = 1%
10 … = .1%
1 … = .01%
10 points = $1

A

Basis Points (BPS)

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32
Q

-interest rate risk
-purchasing power risk
-risks that an investments value will decline because of entire market decline
-inflation risk
-cannot be reduced by diversification

A

Systematic Risk

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33
Q

-default/credit risk
-call risk
-liquidity risk
-business risk
-risks unique to an individual security, industries, or countries
-lessened by diversification

A

Unsystematic Risk

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34
Q

-current return an investor is earning based on price they paid on the stated coupon rate

formula is annual interest/current market price

A

Current Yield

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35
Q

-rate of interest set when bond is issued
-does not change
-not affected by changes in market prices on interest rates

A

Nominal Yield

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36
Q

-investors total return assuming they hold until maturity
-return accounts for bonds purchase price, coupon rate earned, and any gains or losses on the bold if held to maturity
-accounts for time value of money and compounding interest
most accurate way to measure a bondholder’s potential return since it takes into account all of these variables

A

Yield to Maturity

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37
Q

-the increase over par value an investor receives when the bond is called

A

Call Premium

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38
Q

-measure of how the call affects an investor’s return
-yield to worst must be disclosed

A

Yield to Call

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39
Q

–gives investor the right to sell the bob back to the issuer at a set price after specified date
-lower coupon rates
-likely to be exercised when interest rates rise
-bondholder can reinvest principal into a bond w higher coupon rate
-sets the floor

A

Put Option (Tender Offer)

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40
Q

-the risk that the issuer cannot make interest and principal payments
-measured by rating agencies
-treasury bonds have no ….. risk
-happens with bonds especially high-yield bonds
-help by investing in safer bonds and stocks and us treasuries

A

Credit (Default) Risk

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41
Q

Investment Grade
AAA
AA
A
BBB

Speculative Grade
BB
B
CCC
CC
C

Can be adjusted slightly with + or _

Commerical Paper
A-1
A-2
A-3
B
C

A

Standard & Poor’s

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42
Q

Investment Grade
Aaa
Aa
A
Baa
Speculative Grade
Ba
B
Caa
Ca
C

Can be adjusted slightly with a 1,2 or 3

Commerical Paper
P1
P2
P3
NP

Municipal Notes (Short Term)
MIG1
MIG2
MIG3
SG

A

Moody’s

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43
Q

-risk that rising interest rates will cause bind prices to fall
-bond w long term maturities or low coupon rates and sold at a deep discount and most susceptible to this risk
-only exists for fixed income securities (bonds with fixed rates and preferred stock with fixed dividends)
-help by investing in stocks and convertible bonds
-puttable bonds do NOT have this

A

Interest Rate Risk (market)

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44
Q

-interest rate that is periodically reset to a market index
-coupon moves in same direction as interest rate
-do NOT have interest rate risk

A

Variable Rate Bonds

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45
Q

-issued with a coupon rate that will increase over time based on predetermined schedule
-may or may not reflect current market rates
-typically, callable
-subject to call risk
-price stable
-for investors looking for protection from interest rate risk

A

Step-Coupon Bond

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46
Q

Greatest % movement to lowest in interest rates are up

A

large discount bonds (low coupon)
small discount bonds
par bond
small premium bond
large premium bond (high coupon)

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47
Q
  • risk that investors lose money
  • most prevalent in high-yield (Junk) bonds as well as speculative stocks and speculative options
A

Capital Risk

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48
Q

-risk that the investor will be able to buy fewer goods and services when bond matures if inflation has caused prices to rise since the bind was issued
-TIPS give protection
-affected most by us treasuries and safe fixed income securities like bonds and preferred stock
-help by investing in stocks, reits, adrs

A

Purchasing Power Risk (inflation risk)

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49
Q

-risk with inability to sell an investment quickly at a competitive price without any loss of principal
-Secuity is thinly traded and may be difficult to sell at actual value
-short term high quality is liquid
-long term and lower quality are less liquid
-includes private placements, DDPs, hedge funds, auction rate securities, municipal bonds
-help by investing in actively traded stocks and us treasuries

A

Liquidity Risk

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50
Q

-risk that new laws could reduce the value of a security
-change in tax laws that increase the taxes on interest received from debt investments
-like regulatory risk which is result of changing rules as opposing to changing laws

A

Legislative Risk

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51
Q

-a company that underperforms investor expectations
-caused by poor management, change in tech, change in company’s industry
-largest risk is going out of business
-can be calculated by examining company’s financial statements
-can be reduced by diversification

A

Business Risk

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52
Q

-where rates are flat or rising and there are few prepayments then average holding period is extended

A

Extension Risk

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53
Q

-avoids currency risk
-issued overseas
-not registered with SEC
-denominated and pay interest is USD

A

Eurodollar Bonds

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54
Q

–avoid reinvestment risk
-treasury bonds that have been stripped of their interest payments making them 0 coupon
-safe and long term
-price swings very volatile as interest rates move
-high-interest rate risk

A

STRIPS (Separate Trading of Registered Interest and Principal of Securities)

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55
Q

-level of a bonds sensitivity to interest rate risk is measured by
-measure in years of how long it takes the price of a bond to be repaid by its cashflow

A

Duration

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56
Q

least volatile due to short term maturities
-1,2,3,6,12-month maturities
-min $100
-quoted on a discount yield basis
-discount earned is the interest income
-dont pay semiannually

A

T-Bills

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57
Q

-historically issued in physical form from coupons attached
-use the term coupon to refer to the stated interest rate also known as nominal yield for debt instruments
-no longer issued

A

Bearer Bonds

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58
Q

-registered as to principal and interest
-issued as book entry
-no physical certificates issued
name, address, and amount registered w transfer agent

A

Fully Registered Bonds

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59
Q

-send the semiannual interest payments directly to registered owner
-at maturity they send the final $1,000 principal repayment to registered owner

A

Paying Agent

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60
Q

-bond contract bonds are issued under
-defines the interest rate, maturity, collateral, call or put provisions, and all other features of the bonds
-can require protective provisions or covenants that include insurance coverage, audit, and ratios of assets to liabilities

A

Indenture

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61
Q

-appointed to monitor compliance with the provisions of the indenture
-ensures that the corp. adheres to the identure

A

Trustee

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62
Q

-corp. issues of $50M or more
-municipal and gov. issues are exempt
-explains issuers duties to bondholders
-where the flow of funds for a muni revenue bond offering is set forth in

A

Trust Indenture Act of 1939

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63
Q

-short term corporate financing needs
-maturities typically range from 14 days to 90 days, with 30 days being most common
-maturity rarely exceed 270 days because the issue would then have to be register with SEC
-sold at discount and matures at face value
-earned interest income received at maturity
-$100,000 min. denomination
-exempt security

A

Commercial Paper

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64
Q

-intermediate and long-term unsecured corp. debt
-higher credit risk since only backed by insures promise to pay
-issued by strong companies
-issued under an indenture
-backed solely buy full faith and credit

A

Debentures

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65
Q

-junior status in corp. liquidation
-paid after all creditors
-may include conversion feature that allows the bond holder to convert the bond into a fixed number of common shares

A

Subordinated Debentures

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66
Q

-form of debenture
-typically issued by subsidiary company with the corporate parent company guaranteeing payment of interest and principal as due
-take on credit rating of parent company

A

Guaranteed Bonds

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67
Q

-issued as corporate reorganization
-issuer will default on any outstanding debt when a corp. goes bankrupt
–wants to convince the existing bondholders to surrender any claims under the old bonds and accept a new type of bond
-new bond is income bond that only obligates the issuer to pay if it has a sufficient earning in the future (adjustment bonds)
-not suitable for investors seeking income since payments are not guaranteed
-if income bond misses’ payment it is not considered to be in default
-obligates issuer to pay interest ONLY if company meets specific earnings test

A

Income Bonds

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68
Q

-prices include any interest that has accrued on the bond from the last interest payment date until the day before the settlement date
-paid by the buyer to the seller of a bond
-included on both trade confirmation
-T+1

A

Accrued Bonds

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69
Q

-when a trader buys the lower priced security and simultaneously sells the equivalent higher priced security to lick in a profit
-only works when bond trades below parity

A

Arbitrage

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70
Q

-nonnegotiable and cannot be traded
-bought from gov. and can only be redeemed from gov.
min purchase of $25
-NOT security D

A

Savings Bonds (Series EE bonds)

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71
Q
  • long term securities with maturities of 30 years
    -min $100
    -pays interest semiannually and noncallable
    -most heavily traded securities
A

Treasury Bonds

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72
Q

-avoids purchasing power risk
-fixed interest rate over life of bond
-principal amount adjusted every 6 months by amount equal to Consumer Price Index (CPI)
-fixed interest semiannually
-interest increased if principal amount is adjusted upwards due to inflation and will decrease if principal amount id decreased due to inflation
-5,10,30 years
-do NOT depend on CPI
-exempt from state and local tax
-nominal interest rate approximates real interest rate

A

TIPS (Treasury Inflation-Protected Securities)

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73
Q

-intermediate-term securities issued with maturities ranging from 2-10 years
-min $100
-pays interest semiannually
-discount down price up

A

Treasury Notes

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74
Q

-issued outside the U.S where there is high demand for dollar-denominated securities
-issued by corps., US municipalities, foreign gov.
-pay interest and principal in US dollars
-not required to be registered with SEC since issued outside US

A

Eurodollar Bonds

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75
Q

-issued by FHLBs, FNMA (Fannie Mae), GNMA (Ginnie Mae), FHLMC (Freddie Mac)
-make secondary market in home mortgages
-purchase mortgages from bank that originated loans so the bank can sell more mortgages
-obtains funds by selling bonds to public
-US gov. does NOT directly back these issues besides Ginnie Mae Securities
-$25,000 min. denominations
-Monthly mortgage-payments passed through to the certificate holder
-placed in “pool”
-monthly payments of interest and principal
-certificates are self-liquidating as mortgages get paid off
-Prepayment Risk (refinancing)
-real maturity is unknown but shorter than states maturity
-Prepayment risk increases when interest rates fall since homeowners are more likely to refinance in low-interest rate environment
-30/360

A

Mortgage-Backed Securities (MBS)

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76
Q

-purchases insured student loans from qualified lending institutions
-loans purchased from colleges, universities, state agencies, and banks
-sells normal debentures
-pays interest semiannually backed by loans
-does NOT deal with mortgage debt

A

Student Loan Marketing Association (SLMA, Sallie Mae)

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77
Q

-type of structured product
-may be backed by pool of debt assets like corp. bonds, bank loans, asset backed securities, and mortgage-backed securities
-can be collateral bond obligation or collateral loan obligation
-complicated securities that may carry high levels of risk
-unsuitable for avg retail investor

A

Collateralized Debt Obligations (CDOs_

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78
Q

-type of structured product that invests in mortgage-backed securities
-non-exempt
-issued by bank
$25k min, $1k units
-invest only in mortgages that are insured
-private label … are riskier
-interest income taxable at all levels

A

Collateralized Mortgage Obligations (CMOs)

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79
Q

-most basic CMO structure (plain vanilla)
-each tranche receives regular interest payments, but the principal payments are paid out sequentially to different tranches
-senior tranche receives principal payments until investors paid off
-junior tranches are last to be paid

A

Sequential Pay

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80
Q

-variant of PAC
-designed to provide a targeted amount of prepayment each month
-if increased they are absorbed by a companion tranche first, if decreased the extension risk is borne by …
-provides investors with protection against prepayment risk but not against extension risk
-higher yields than PAC but lower than companion tranches

A

Targeted Amortization Class (TAC)

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81
Q

-who principal payments go to first
-offer a high degree of cash flow stability but have lower yields
-lowest prepayment or extension risk
-companion or support Tenches are more volatile and considered a shock absorber if too many prepayments occur or not enough

A

Planned Amortization Class (PAC)

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82
Q

-receive no principal or interest until the higher priority bonds are completely paid off
-act as zero-coupon bonds
-last tranche to get paid
-higher rates of return but higher interest rate risk

A

Z Tranches

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83
Q

-variable interest rate based on underlying index
-market price stable and close to par

A

Floating Rate Tranche

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84
Q

-offer different rate on interest, repayment schedules, and levels of priority for principal repayment
-investors choose the maturity and risk level most suitable for them
-derivative products

A

Tranches

85
Q

-must include coupon rate, expected yield and average life, number and class of its trenches, final maturity date, CMOs underlying collateral
-must include disclaimer
-all comms. must be filed with advertising reg. department of FINRA within 10 business days of first use or publication

A

Retail Communications

86
Q

-trading of gov. and agency securities take place solely on this market
-not an exchange
-include large commercial banks, foreign banks, US gov securities dealers, and full-service brokerage firms as well as the Fed itself
-largest participants are primary US gov. securities dealers-Primary Dealers, all others are secondary dealers
-all can bid in weekly auction

A

OTC Market

87
Q

-involve the Fed engaging in the trading of US Treasury Securities
-Fed maintain own trading account that buys and sell large quantities of gov. securities in market to manage interest rates

A

Open Market Operations

88
Q

-issued by state and local gov. to finance operation
-interest received in FED income tax free
-interest income tax exempt for instate investors
-exempt for federal regulations
-include AMBAC, MBIA, FGIC (insurers)
-triple tax exempt
-not much growth
-used for reduced taxes, income, and capital preservation

A

Municipal Debt Obligation

89
Q

-detailed disclose document
-contains info about the bonds and financial condition of the issuer
-municipal issuers and required to give their customers copy of this by confirmation of the trade\
-required to be delivered at or prior to settlement
-requested by underwriters to satisfy SEC due diligence requirements and the disclosure requirements of new issue purchasers

A

Official Statement

90
Q

-can be long or short term
long term usually serial bonds and pay semiannually
-short term discount to par or at par w accrued interest

A

Municipal Debt Maturities

91
Q

-allow issuer to call a bond, in whole or in part
-typically made when issuer can reissue the debt at a lower interest rate
-could be used to change the terms (convents) of the bonds indenture or reduce amount of outstanding debt

A

Optional Calls

92
Q

-allows issuer to redeem bonds if certain events occur like earthquake or fire
-calls may be optional or mandatory

A

Extraordinary Call (Catastrophe Call)

93
Q

-require the issuer to set aside periodic payments aimed at amortizing or reducing its debt
-funds are placed in escrow to provide for the future retirement of the issuers long term debt prior to maturity
-must be safe and liquid investments
-lowers risk of default
redeemed at par

A

Mandatory Call (Sinking Fund Redemption

94
Q

-process of retiring outstanding bonds and issuing new ones
-interest rates fall and issuer may issue new bonds
-proceeds placed in escrow

A

Refunding

95
Q

-short and long term GO debt, less cash and cash equivalents

A

Net Direct Debt

95
Q

-when proceeds from new bonds are put in escrow and are sufficient to pay off the principal and invest payments of the old, refunded bonds, the assets and liabilities cancel each other out on balance sheet

A

Defeasement

95
Q

-Backed by full faith, credit, and taxing power of the issuer
-backed by tax revenue
-rely on voter approval
-backed by ad valoerm taxes (real estate)
-statutory debt limit not feasibility study

A

General Obligation Bond

96
Q

-requires the issuer to set money aside regularly in a reserve account for the redemption of bonds before maturity

A

Sinking Fund Redemption

97
Q

-debt issued by municipalities that have overlapping geographic boundaries
-debt issued by school distract may be paid in part by residents of the municipalities located in district

A

Overlapping Debt

98
Q
  • a measure of the total tax burden on a municipality resident
    -combination of net direct debt and overlapping debt
A

Net Overall Debt Per Capita

99
Q

-backed by revenue from a specific source like hospital, tolls, stadium
-not backed by full faith and credit and often issued by separate authority such as transportation authority
-don’t allow bondholder to force taxation or legislative action for payment
-self-supporting debt
-feasibility study not statutory debt limit

A

Revenue Bond

100
Q

-promises that provide protection for bondholders

A

Covenants

101
Q

-ease temporary cash flow shortage
-paid off when taxes or anticipated revenues are collected sometime in near future

A

TANs (Tax Anticipation Notes)

102
Q

-when an issuer refinances existing bonds by issuing new bonds
-ex) interest rates have declined and a municipality raises money with a new bond issue and uses the proceeds to call an existing issue
-when new bonds are issued with the purpose of using proceeds to pay off older bonds

A

Refunding

103
Q

-may be sold without a prospectus

A

Bankers Acceptances

104
Q

-unfunded debt
-source of temporary financing
-issued by municipalities that wishes to borrow short-term against revenues that are expected to be received in near future

A

RANs (Revenue Anticipation Notes)

105
Q

-both interest and principal paid at maturity

A

CAB (Capital Appreciation Bond)

105
Q

-general obligation
-seller loses control of the underlying securities for the duration of the agreement
-interest rate charged is most similar to fed funds rate
-has interest rate risk
-no liquidity risk

A

Overnight Repurchase Agreement

105
Q

-ex) a municipality issues a new revenue bond offering that have the same claim on revenues of the facility as a prior bond offering, new debt issue is known as …..

A

Parity Bond

106
Q

-paid monthly
-each payment consists of combination of interest and principal
-not directly backed by gov.
-not all payments are income

A

Ginnie Mae

106
Q

-opines on validity, legality, tax exempt status of the issue
-dont render market or economic opinions

A

Municipal Bond Counsel

107
Q

-publicly traded
-pay a commission

A

Close End Funds

107
Q

-mutual fund most common
-required to register with SEC
-face amount certificate companies, management companies, UIT
-prospectus

A

Investment Company Act of 1940

108
Q

-follow passive investment strategy
-redeemable

A

UIT

109
Q

-safeguard assets of the fund
-may act as transfer agent, registrar, and paying agent
-charges administrative fees

A

Custodian Bank

110
Q

-distributes income and send out shareholder reports

A

Transfer Agent

111
Q

-for this distribution plan it requires approval of shareholders, BOD, and independent members
–offsets cost of marketing
-not sales charges based on customer purchases, they are ongoing asset-based fees that are subtracted from the asset of the fund to determine NAV
-cannot exceed 1% of average net assets of which no more than .75% can be used for marketing
-max sales charge 7.25%
-max for no-load is ,25%
-asset based expenses
-mailings to prospective purchases of the fund are acceptable …..charge
-mailing to existing shareholders is NOT a ….. charge
-used to pay for distribution cost

A

12b-1 Fee

112
Q

-fund must distribute at least 90% of net income to shareholders
-fund not required to pay taxes on the income it distributes to shareholders
-instead, shareholders pay taxes on dividends
-regulated by IRS

A

Regulated Investment Company (RIC)

113
Q

-commission
-can be sold short
-leveraged and inverse suitable for short term speculators
-prospectus required
-their purchase requires a brokerage account and paying a commission

A

ETF

114
Q

-long term notes that track an index and offer principal protection
-usually, zero coupon that repays principal at maturity
-unsecured offered by bank or BD
typically matures in 10 years
-credit risk
-liquidity risk
-many cost and fees
-not for avg retain investor

A

Principal Protected Note (PPN)

114
Q

–not investment company
-avoid double taxation
IRS requirements
-90% of income to shareholders
-75% of gross income must be real estate related
-95% annual gross income from real estate related or dividends and income from other sources
-75% of total assets in real estate
-managed by BOD or trustees
-min of 100 shareholders
-not redeemable
-trade on exchange and OTC
-can’t invest in Lps

A

REITs

114
Q

-offers higher yields
-can only sell shares in limited amounts at certain times
-type of investment company
-type of close end fund
cannot be purchased on exchange

A

Interval Funds

114
Q

-debt instrument with a payment at maturity
–debt obligation created by investment bank
-linked to equity index
-gain treated as capital gain so taxed lower than interest
-credit risk

A

ETN

114
Q

-diversification with alternative investments
-illiquid
-open to accredited investors
-private investment fund
-lightly regulated
-high initial investments
-take percentage of assets under management plus percentage of capital gains up to 20%

A

Hedge Funds

115
Q

-private equity
-invest in privately held companies

A

BDC (Business Development Company)

116
Q

-requires all market centers to electronically link and provide automated execution within 1 second for orders that are executable
–mandates that market centers cannot discriminate against customers who access their quotes
-trade through prohibits maker on an exchange from executing a trade at an inferior price to that posted by another market at that moment
-trading halt initiated if SPX drops by 7% before 3:25 pm

A

Regulation NMS

117
Q

-requires electronic capture of all equity and option orders in the US along with resultant trades

A

CAT (Consolidated Audit Taril System)

118
Q

-reports completed trades of equity securities

A

TRF (Trade Reporting Facility)

119
Q

–system for reporting trades o corporate and agency bonds
finras automated system for reporting otc debt securities
-does not accept quotes or execute trades, only reports comoleted trades
-both buy and sell side report
-must be within 15 min
-doesnt include muni bonds, money market debt securities, exchange listed debt secutires

A

TRACE

120
Q

-trades for his own account
-executes orders for other brokers
-executes off lot orders
-does NOT participate in new issue syndicates
-market, limit, marketable limit
-can NOT handle market- not held orders
-

A

The Specialist (DMM)

121
Q

-sources of undisplay liquidity
-regulated as B/D
-subject to Reg ATS

A

Dark Pools

122
Q

-short sales of stock subjected to SEC …
-requires that every order ticket to sell be marked as either long sale or short sale
-if short securities to be borrowed must be located by broker and borrowed shares must be delivered on settlement
-that Secuity can be borrowed and delivered by settlement

A

Regulation SHO

123
Q

-exchange listed securities that trade OTC must be reported and displayed
-finra
display quotes
-collects and disseminates quotation and trade reports and compares trades but cannot route orders or execute trades
-quotes displayed are from unlinked ECNs

A

ADF (Alternative Display Facility)

124
Q

-allows individuals to obtain info on recent prices and prices trends in muni securities
-where reported transactions are posted

A

EMMA (Electronic Municipal Market Access)

125
Q

-written promise that a B/D will deliver a dividend to another B/D once the dividend is received by the issuing company

A

Due-Bill

126
Q
A

NSCC (National Securities Clearing Corporation)

127
Q

-execute all trades, settle all trades, maintain custody, provide financing

A

Clearing B/D

127
Q

-the executing broker dealer provides the clearing number of the prime broker when reporting trade for comparison and clearance
-executing broker ……. the name of the clearing prime brother when the trade is reported

A

“Give Up”

128
Q

the executing broker provides the clearing number of the prime broker after the trade is reported for comparison and clearance
-executing broker ……. of the reported trade for comparison and clearance
-used to move a reported trade from the account of executing member to clearing member
-movement of position only

A

“Step Out”

129
Q

-required when a trade takes place before the ex-date, but settlement does not take place until after the record date
-seller will receive the dividend but it actually belongs to the buyer
-seller will be required to forward the dividend to the buyer when it is paid
-first day that stock will trade without a due bill attached is ex date

A

Due Bills

130
Q

-lend securities to institutional clients
-lend money to institutional clients
-consolidate and maintain positions for institutional clients
does NOT execute all trades for institutional clients

A

Prime B/D

131
Q

-when a security registered on the issuer’s books in the owner’s name and held in book entry form by the issuing company on the owner’s behalf
-……… records the owners name on the books of the transfer agent
-dividends and interest payments on securities are received from the issuer or transfer agent

A

Direct Registration

132
Q

-composed of 500 largest companies based on market capitalization
-hq in US

A

S&P 500 Index (SPX)

133
Q

-sub index of 100 stocks out of S&P 500

A

S&P 100 Index (OEX)

133
Q

-covers 30 stocks in Dow Jones Industrial Avg.

A

Dow Jones Industrial Average Index Option (DJX)

134
Q

-… index option is traded on Chicago Board Options Exchange
-mirrors price movements in broad market
-instead of covering 100 shares, the contract is said to have a multiplier of 100

A

S&P 100 Index (OEX) Options

135
Q

-mimics DJIA and consists of 20 stocks most of which are in DJIA
-tracks DJIA w/ 99% accuracy

A

NYSE Acra Major Market Index (XMI)

136
Q

-newer type of index option is a contract w a long ling
-cover both OEX and SPX
-expire on 3rd Friday
-OEX-American, SPX-European
-if exercised the writer must pay the holder the in the money amount(identical to the exercise of regular index options)
-Max life is 36 months
-75% of premium if outside of 9 months of expiration

A

LEAPS (Long-Term Equity Anticipation Securities)

137
Q

-benchmark index that gauges investor sentiment commonly referred to as a fear gauge
-reflects investors consensus view of expected stock price volatility over upcoming 30 days
-only issued in European style
-9:30-4:15
-negatively (inverse) correlated to stock price movements
-inverse correlation to S&P 500
-volatility will affect the premium
-usually bearing

A

Volatility Index Options (VIX)

138
Q

-the contract value tracks interest rate movements not the security price
-if market interest rates rise call premiums rise and put premiums fall and vice versa
-speculate on interest rates movements, buy calls for rise and outs if falls
-cash settlement next day
-European style

A

Interest Rate Index Options

139
Q

-how foreign currencies are traded-trading is unregulated and in very large units (usually $5M min)
-buyer and seller negotiate the price and settlement terms
-settlement can be spot market or forward contract

A

Interbank Market

140
Q

-settlement and delivery in 1 or 2 business days
-more active the quicker

A

Spot Market

141
Q

-settlement later than spot market
-usually months in future

A

Forward Contract

142
Q

-settle cash and regular way
-take place on Philadelphia Stock Exchange

A

foreign Currency Options

143
Q

-name and address
-name of RR
-only principal signature required
-neither customer signature or education background is required
-must be sent within 30 days of opening the account, at least every 3 years after to verify and update info, within 30 days of updates

A

New Account Form

144
Q

-customer doesn’t need to sign
-customer gives up right to sue
-final and binding
-do not have to explain reason for their award
-panels include a minority of individuals who were, are, affiliated with the securities industry

A

Arbitration Agreement

145
Q

-limits ability of B/D, investment companies, and investment advisors to disclose personal identifiable info about customers with non affiliated third parties
-requires written plan that covers the safeguarding of customer information

A

Regulation S-P

146
Q

Natural Persons

A

Form CRS

147
Q

-rules for cash and margin accounts governed by the FED
-gov, agency issues, Muni, commercial paper are exempt
-min. maintence set by finra
-initial set by FRB
-payment required by customer S+2 if extension granted by finra they get an extra 2 days
-if not paid firm is obligated to sell out that position and freeze account for 90 days
-frozen means u can still trade but cant borrow unless have 100% of cash

A

Regulation T

148
Q

-when an investor borrows securities from a B/D and sells them
-can only be done in margin account
-bearish

A

Short Selling

149
Q

-4 or more trades in 5 business days
-purchase and sale of same security in same day
-min equity is $25,000
-min maintance of 25% of highest intraday market value
-buying power is (1/.25) x 4

A

Pattern Day Trader (PDT)

150
Q

-only do cash accounts, no margin accounts
-need proper documentation
-only permitted to trade in account and cannot give authorization to another person
-follows prudent person rule/ restrict investments to a legal list provided by state
-naked call writing is prohibited
-covered calls and protective puts are permitted
-includes trust, custodial, and executor of estate accounts

A

Fiduciary

151
Q

-full rights to the assets in an account are transferred to the minor once the minor reaches the age of majority in their state of residence
-minor always legal owner of account
-opened w minors SSN or tax ID #
-investments limited to financial assets (stocks, bonds, mutual funds, etc.) and cannot be made in real estate, collectibles, or uncovered products like options

A

UGMA

152
Q

-can include greater range of assets including real estate
-allows custodian to delay the transfer of assets beyond the age of majority but no later than 25
-actual age limits vary by state

A

UTMA

153
Q

-person appointed by a court to protect the assets of a minor or an incompetent adult
-firm must obtain a copy of the court order appointing the guardian
-opened in only the name of minor or incompetent adult

A

Guardian Account

154
Q

-requirements include nondiscrimination, eligibility, vesting, fiduciary responsibility
-covers retirement plans offered by for profit employers
-401k are subjected

A

ERISA

155
Q

-100% taxable, since the plan has a $0 cost basis

A

403(b)

156
Q

-100 or less employees

A

SIMPLE IRA

157
Q

-established by employer
-annual contribution plan can be changed

A

SEP IRA

158
Q

-contact that guarantees a min growth rate for the separate account at the time of annuizitation

A

GMIB (Guaranteed Minimum Income Benefit)

159
Q

-investments held in separate account grow tax deferred

A

Non-Qualified Variable Annuity

160
Q

-registration Statement (filed w help of IB)
-require companies to publicly disclose all relevant financial information about their securities prior to offering them for sale
-to prohibit

A

The Securities Act of 1933

161
Q

-exempts small offerings of no more than $75 million
-open to corporate issues but not investment companies or disqualified issuers
-filed offering statement and offering circular
-considered public offering
-no restrictions who can invest and may be publicly traded

A

Regulation A

162
Q

splits, change in par value, dividend, mergers

A

Rule 145

163
Q

-exempts intrastate issues from federal registration
-both issuer and all purchasers must be state residents
-resale is permitted to state residents only, for the 180 day period following the offering
-not exempt from state registration

A

Rule 147

164
Q

-private placements

A

Regulation D

165
Q

-covers sale of control stock
-unregistered restricted stock
- must be held for 6 months, fully paid, before it can be sold
-if sale is for 5k shares or less worth 50k or less no sec filing is required
-any short swing profits within 6 months from trading the stock must be returned to corp.

A

Rule 144

166
Q

-qibs

A

Rule 144a

167
Q

-offshore transactions

A

Regulation S

168
Q

-potential market manipulations during primary offerings

A

Regulation M

169
Q

-gives syndicate the option to require the company to use up to 15% more shares in the offering at its discretion

A

Greenshoe Option

170
Q

stock offering and the issuer has previously conducted a public offering of stock

A

Follow-on offering

171
Q

0covers functioning of the secondary markets
-covers nonexempt
-applies to individuals and B/D trading both exempt and non exempt securities
-applies to anyone for antifraud

A

Securities Act of 1934

172
Q

-establish prearranged trading plan
-safe harbor that permits officers, directors, and 10% shareholders to set up a written plan for trading their companies securities
-specifies future date and amount of securities that will be bought or sold

A

Rule 10b5-1

173
Q

-a form that must be filled out w SEC whenever someone acquires more than 5% of an issuers voting stock
-must be made within 10 days

A

Schedule 13D

174
Q

-empoyered to administrate 1933 ,1934, and Trust Indenture Act of 1939, ICA 1940
-NOT Uniform Securities Act

A

SEC (Securities and Exchange Commission)

175
Q

-more known as Blue Sky state laws and is adopted state by state

A

Uniform Securities Act

176
Q

-prevents issuers from giving nonpublic information to favored persons like research analysts and institutional investors

A

Regulation Fair Disclosure

177
Q

-short sale regulation
-have a uniform federal rule that can be applied to all securities markets and to curb the potential manipulative practice of naked short selling

A

Regulation SHO

178
Q
A

Securities Investor Protection Act of 1970 (SIPC)

179
Q
A

Federal Deposit Insurance corporation (FDIC)

180
Q

-all companies that issue more that 50 million of corporate bonds must sell bonds under trust indenture

A

Trust Indenture Act pf 1939

181
Q

-min 100k and 100 shareholders, 40% of total assets invested n securities
-75-5-10 rule, 75 assets in securities, no more than 5 in 1 issuer, no more than 10 in voting of any issuer

A

Investment Company Act of 1940

182
Q

-firms or people who sell their advice for a fee must register w SEC

A

Investment Advisors Act of 1940

183
Q

-gave the highest authority over securities registration to the SEC so mutual funds do not have to register with the various states
-states retain their own regulatory authority
-federal covered advisors that register with SEC (investment companies and over 100M of assets)
-state registered advisers (advisors w less than 100M of AUM)

A

National Securities Markets Improvement Act (NSMIA)

184
Q
A

Maloney Act of 1938

185
Q

-held for 4 years
-kept at office of supervisory jurisdiction

A

Customer Complaints

186
Q
A

EGCs (Emerging Growth Companies)

187
Q

-retail customer use
-created by MSRB
-gives muni investors free access to muni disclosure docs and muni price reporting
-where SHORT and RTRS info is found

A

EMMA (Electronic Municipal Market Access system)

188
Q

-relies on market trends to predict future market direction
-use stock price charts and other market data to decide when to buy/sell
-rely on volume to determine the strength of the market

A

Technical Analysis

189
Q

-determines a securities value based on company’s financial statements that are part of their annual report
-this info determines if the security is overpriced, undervalued or fairly valued
-these financial statements are income statement, balance sheet, cashflow statement
-uses technical analysis to determine transaction timing

A

Fundamental Analysis

189
Q
A

EBITDA (Earnings Before Interest, Taxes, Depreciation, and amortization)

189
Q

-a measure of correlation between the performance of a single security or portfolio and the performance of the market as a whole
-S&P 500 = 1
-1=match market 1>=less volatile 1<more volatile

A

Beta

189
Q

1.2=20% more volatile
high beta=high tech low beta=utility
=expected return for a security is the risk free return plus a risk premium
-the additional return investors demand given the level of risk they taken on
-investors would expect a higher rate of return for high tech stock vs a utility company

A

Risk Premium

189
Q

=actual return-expected return
-expectations are based on past performance but pas performance is not always an indication of actual future returns
-stocks …. is the difference between a securities actual return and its expected return
-when greater than 0 it means that is has performed better than expected and vise vera
-can be used to measure mutual funds performance
-majorly impacted on a major change in corps capital structure

A

Alpha

190
Q

-arm of the Department of Treasury
-responsible for collecting taxes and enforcing the Internal revenue Code
-also helps enforce the tax code by investigating cases of tax fraud and makin referrals to DOJ for prosecution

A

IRS (Internal Revenue Service)

190
Q

-allows penalty free distribution to age 59.5 from IRAs and employer sponsored retirement plans kif certain conditions are met
-include death, disability, first time home purchase, and taking substantially equal periodic payments

A

Rule 72(t)

190
Q
A
191
Q
A
191
Q
A

SIE (2 decks)

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